Patent Reform: The Second Act

Lisa Shuchman

Corporate Counsel

2012-11-01 00:00:00.0

The America Invents Act, the historic 2011 law that reforms the U.S. patent system, saw its second phase take effect in September, creating new rules in the complex world of patents that in-house counsel should not ignore. (A third and final phase will be implemented in March of next year.)

"This could be a real game-changer," says Erika Arner, chair of the patent prosecution practice at Finnegan, Henderson, Farabow, Garrett & Dunner. "The provisions will create new ways to challenge patent applications and existing patents, and counsel will want to more closely monitor the patent landscape and their competitors."

Among the more significant changes is a provision that allows third-party submissions during examination of a patent. Unlike in the past, when the patent applicant and the Patent and Trademark Office were the only parties involved in the examination process, the new rules allow third parties who believe a patent should not be issued to join in. A third party can submit prior art—a published patent application, a patent, or any other printed publication of potential relevance—to the patent examiner for consideration.

The change is intended to improve the quality of patents and get relevant information to PTO examiners before a patent is granted—rather than through litigation after the patent is in place.

Third parties now can also request an inter partes review of any issued patent—a kind of mini-trial in which the validity of an existing patent can be challenged. This has the potential to be a powerful tool, attorneys say, because the review takes place in front of judges rather than examiners, and there is a statutory time limit placed on the process: A ruling must be made within one year from the time the patent was granted.

"This is a real, viable option that could change the face of patent litigation," says Matt Kreeger, a partner at Morrison & Foerster in San Francisco. "The review can run parallel to litigation filed in a district court, and the court will stay the case while the patent is under review at the PTO."

Another provision potentially valuable to in-house counsel is the new postgrant review. Like in the inter partes review, a third party can request a postgrant review of an existing patent to challenge one or more of its claims. But unlike the inter partes review, which is entirely based on prior art, the postgrant review may be requested on any grounds for invalidity, such as whether the invention should be considered patentable subject matter. It also comes with a time limit, and must be requested within nine months of the date the patent is granted.

"This applies to patents issuing from applications filed after March 16, 2013, when the final phase of the America Invents Act (AIA) goes into effect, but in-house counsel should start thinking about it now because they only have nine months to file for a postgrant review," Kreeger says.

One specific type of patent—the business method patent—will be subject to postgrant review immediately, however. Under this provision, a person who has been charged with infringement of a business method patent can request that the PTO cancel one or more claims of the covered business method patent on the grounds of prior art. Business method patents are often asserted by nonpracticing entities (NPEs), commonly referred to as "patent trolls," which have been blamed by many in the IP world for the dramatic increase in the amount of costly patent litigation in the United States.

These new ways to challenge and protect existing patents within the PTO are intended to offer an alternative to litigation in district court—"a faster and cheaper way to resolve issues," Arner says. They bring the U.S. more in line with patent systems in Europe—a move that will continue when the final phase of the law takes effect next March. At that time, the "first-to-file" provision of the AIA, which will make the first party to file for a patent—not the first to invent—the patent owner, will kick in.

But the reforms also mean that in-house counsel will have to make more strategic considerations. They should ask themselves, for example, whether it is more advantageous to have a particular case heard before judges at the PTO or in front of a district court judge and jury. And they should consider whether it is in their interest to request an inter partes review with the PTO and submit prior art in the challenge of a patent. "This could be a disadvantage later on in court because the particular challenge has already been addressed," says Sasha Rao, a partner at Ropes & Gray.

Perhaps most importantly, in-house counsel also should carefully consider timing when taking advantage of the AIA's new rules, attorneys say. A patent owner may want to wait to publicize a new patent until after nine months have passed, for example, so that a challenge can only be brought under the more limited inter partes review and not the broader postgrant review process. "The challenge will be to decide what best fits the situation," says Steven Baughman, also an IP partner at Ropes & Gray. "There are going to be more choices that will require a balancing act."

These latest changes brought about by the act mean that it's now more important than ever to be vigilant and to set up monitoring systems for key patents of competitors and NPEs. The intricacies of the new law, which will only become more complex when the first-to-file provision takes effect in 2013, are likely—at least in the beginning—to keep in-house counsel busy. And it's really going to fill up the schedules of outside patent counsel. "This is the biggest change in patent law in half a century," says Kreeger, "and in any change of law, it's the lawyers who are the true winners."

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Crowdsourcing, Patently

Applying for a new patent? Take note: The public is watching. The Patent and Trademark Office has teamed up with Stack Exchange, a popular Q&A website for IT professionals and experts in a variety of areas, to make it easy for technology buffs, software geeks, and others with specialized knowledge to check out any new application and question whether it really deserves a patent.

If the plan works as hoped, patent applications that previously might have sailed through the process will now undergo a lot more scrutiny, with expert eyes from the public looking for prior art that could preclude patent approval. The goal is to make the days of overly broad, absurd patents a thing of the past.

"We're building a crowdsourced worldwide detective agency to track down and obliterate bogus patent applications," Joel Spolsky, cofounder and chief executive officer of Stack Exchange, wrote in a blog post on the company's website.

A month ago, none of this would have been possible. But included in the patent law reforms as part of the America Invents Act is a provision that for the first time allows third parties—not just the applicant and patent examiner—to become involved in the patent approval process. "Any person at any time may cite to the office in writing prior art consisting of patents of printed publications which that person believes to have a bearing on the patentability of any claim of a particular patent," the new law states.

To be part of this new group of patent watchdogs, individuals can just log on to Ask Patents, where they can point out a patent application they believe is bogus or find a list of patent applications that others have questioned. Users of the site can discuss a proposed patent's validity and can cite evidence for why the patent should be denied.

Eventually, the service would like participants to be able to submit their evidence directly to the PTO by just clicking a button on the Ask Patents page. But for now, someone needs to actually take the information and file it on the PTO's website, says Jay Hanlon, a vice president of community growth at Stack Exchange.

Since only dedicated activists or parties with a vested interest are likely to take that extra step, Stack Exchange has been working with the PTO to train patent examiners to go to Ask Patents, plug in the application number of the patent they are reviewing, and see whether any comments, questions, or prior art has been submitted, Hanlon says. Every application listed on the site is tagged with its PTO application number.

In addition, Stack Exchange and the PTO are integrating their sites with Google Patent Search, so every patent application on the Google site will include a link to all relevant Stack Exchange discussions.

The new operation is the result of efforts by PTO director David Kappos, according to Spolsky. Kappos personally approached Stack Exchange and encouraged the company to open a site that would generate prior art to help patent examiners do more thorough examinations.

The concept is based on an earlier pilot project spearheaded by New York Law School professor Beth Noveck. In that project, called Peer to Patent, Noveck and the PTO brought together experts in certain fields to comment on select patent applications. Hundreds of applications were reviewed, and dozens were denied or modified based on the prior art the outside experts found, proving the value of third-party input.

In this age of escalating patent wars, powerful patent trolls, and countless patents deemed by many to be overly broad (or totally bogus), many observers have said the U.S. patent system is broken. The latest patent reforms being phased in are an attempt to fix the system, and the PTO and Stack Exchange are hoping their collaboration will help.

"The escalation of the patent wars has led companies to try to patent everything in sight, so they can build up a portfolio of patents ('to defend themselves,' of course, so that they have something to countersue with when they get sued)," Spolsky wrote. "Our hope is that Ask Patents will reduce the number of patents mistakenly granted for obvious, unoriginal noninventions, especially around software, a field that is near and dear to us."

Early indications are that the new strategy might work. An application recently filed by Microsoft Corporation for a patent on "whacking" a phone to silence it, for example, prompted a burst of activity on the Ask Patents site. "Within eight hours of the site going live, someone found an app that has been available since 2009 in the Android market that does just that," says Alex Miller, Stack Exchange's chief of staff.

The success of patent crowdsourcing will largely depend on the degree of participation from technical experts and from people who understand patent law. "We encourage our nation's innovators to follow Stack Exchange's example and assist us as we improve the examination process and resulting patent quality," Kappos says. Some of the prior art submissions from the public may lead an examiner to deny a patent. Some may result in a narrowing of the patent. Others, of course, may have no impact at all.

"It's not a complete fix," Spolsky says. "But it's a start."